The Hidden Costs of Onboarding a New Employee (& How to Avoid Them)

We all know that it costs money to hire. Recruiters have to advertise on job sites, conduct interviews, run background checks and, of course, dispense and retrieve all of the paperwork associated with adding an employee.

But did you know that, according to a report by the Society for Human Resource Management (SHRM), the average cost per hire in the UK is an estimated £3,000?

That number will vary, depending on job level and on hiring practices, but every hiring manager can relate to the problem of inflated talent acquisition costs. Why does bringing on a new employee — which is supposed to be a business solution — drain so many resources? Why do accountants and financial executives pale at the notion of launching a candidate search?

If you look a little deeper, you may find that the issue has more to do with onboarding a new employee after the hiring decision than it does with recruiting. Many HR professionals have a blind spot for this part of the process.

There are several factors that can silently, insidiously hike the cost of employee onboarding:

How to Calculate the Cost of Onboarding a New Employee

Onboarding Paperwork and Administrative Time

Onboarding requires a lot of paperwork — benefits enrolment, tax forms, employee handbooks, NDAs, arbitration agreements and so on. But you probably don’t spend enough on paper and ink to make a significant dent in your budget. The real cost sink comes from the time it takes to manage the completion of that paperwork and other administrative aspects of onboarding. Let’s say a recruiter makes £25 an hour, and you hire 50 new employees per year, and it takes 10 hours of administrative time to process their documents. That adds up to £12,500 per year — probably a conservative estimate for larger companies.

There are a few ways you can minimise this time. First, digitize your onboarding paperwork. There are plenty of HR software solutions on the market that can bring all of the hiring process’s administrative tasks into one system, with self-service access for employees. Second, you can ask your new hires to complete all of their paperwork before day one on the job. That way, they won’t waste paid time filling out forms; they’ll spend it learning the job. According to Aberdeen, “best-in-class” companies are 53 percent more likely to begin the onboarding process before day one.

Early Turnover of New Hires

If you invest weeks of time and effort into onboarding only to see an employee quit six months later, you’ve essentially wasted all of those resources. If this happens multiple times per year, the financial impact can be devastating.

Research shows that being more intentional and structured during the onboarding process can help stave off early turnover. A case study by Corning Glass Works, for example, found that employees who attended a structured orientation programme were 69 percent more likely to stay with the company for three years. That’s probably because good onboarding sets clear expectations for employees and equips them for success, which means they’re less likely to encounter surprises.

Deferred Productivity For New Employees

Another hidden cost of onboarding comes from the reduced productivity that is typical of ramp-up periods, the time during which a new hire is still learning their role and getting acclimated to the work environment — i.e. “learning the ropes”.

New employees get less work done because they’re still figuring out how to execute their responsibilities, navigate new communication workflows and establish relationships. For example, they might have to do research on an account and get up to speed before they start working with decision-makers on that account. Some sources suggest it can take as long as eight months for an employee to become fully productive.

The answer here is to expand your onboarding process further into the “probationary” period. Don’t just cover the paperwork and administrative portion; make a plan for each employee to receive the training and mentoring they need to succeed. Sit down with them on a regular basis and see how things are going. Do they have the resources they need? Have they encountered any problems with processes or co-workers?

Provisioning During Onboarding

Every new employee will need to get set up with a certain array of “stuff”. That stuff could include anything from a laptop and headset to software credentials, key fobs, ergonomic chairs, monitors, parking permits and branded clothing. All of this stuff costs money.

Most of it you won’t be able to eliminate, especially if it’s required for the employee to function. But there are ways to be responsible with provisioning that can reduce costs in the long run. For starters, keep track of everything you give out to new employees, and try to standardise the process as much as possible. An inventory system for hardware and equipment isn’t a bad idea. This is especially important for large enterprises that might hire 100+ people every year.

On the IT side, you should also consider the impact of technology on your ability to scale. If your company is still working from a collection of desktop-based systems, you’ll need to purchase a new license and run multiple installs every time you add a team member, not to mention the expense of doing this for remote workers (vs. the ease of adding users to a web-based platform).

Even as you try to cut costs associated with hiring new employees, remember that one of the most expensive recruiting mistakes is a slipshod hiring process that yields uncommitted workers. When those employees quit in nine months, you’ll pay the ultimate price. Be smart and efficient where you can, but don’t cut out crucial steps just to save a few bucks.

Aleks Peterson is the editor at TechnologyAdvice, a B2B marketing company that connects buyers and sellers of business technology.